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Trade and supply chain

RTP networks: the good, the bad, and the future of payments

ANZ Insights

Published August 1 2021

The benefits of real-time payment for consumers are clear. It’s fast. It’s secure. Paying for goods has never been easier.

But for businesses operating on RTP networks, the outcomes are a little murkier. There are increased costs, and integrating the technology with existing systems can be difficult. Managing hedging and liquidity becomes a greater and sometimes pronounced challenge.

But when used expertly - and with the help of the right partners - RTP networks are putting the businesses which leverage them at the forefront of their markets.

So how can businesses make the most of the tech? It starts with asking the right kind of questions, Michael Jurkovic, Director, Payments Development at ANZ Institutional says.  

“Our customers - the ones on the front end of that innovation curve – are asking themselves, how do I improve my existing customer experience?” he says. That is leading to an uptake of corporate adoption - and some innovative application - of the technology.

That innovation is made easier by the versatile functionality of RTP networks (including near-real time payment), increased data capabilities and 24/7 access – as well as some assistance from ANZ.

“Customers are asking ANZ, how do we actually use these services?” Jurkovic says. “How do I use RTP networks to make my existing customers happier and stick around for longer, or even bring in new customers?”

“With that mindset, we’re seeing some really interesting applications of RTP networks.”

The road

There are a number of countries across Asia further along the RTP road than Australia, according to Balaji Natarajan, Head of Payments & Cash Management Product Asia at ANZ Institutional.

Among the key drivers of this are governments and central banks wanting to “remove friction in the financial system”, he says, a trend lifting the digital economy model in the region. “It’s a very hot space for a lot of countries.”

ANZ customers in the insurance space have been leaders in Australia, using the technology to move toward a real-time claims process, Jurkovic says.

“They are able to work with their customer in real time, satisfy themselves as to the veracity of an insurance claim, and then affect the claim settlement in near real time,” he says.

It’s the same story in Asia.

“With RTP networks, the insurance company doesn't need to ask customers to re submit the bank details you set up when you registered the account, or if your account is still valid,” Natarajan says, noting with RTP overlay services, companies can very easily validate using the unique customer ID registered.

The superannuation industry is also a leader when it comes to evolving to utilisation of RTP networks, Jurkovic says, particularly around “reducing liquidity movement friction in the system”.

“They're looking to RTP networks to reduce some of the latency in the existing system, for example between companies paying into the superannuation clearing house and the disbursement of the superannuation money into the super funds themselves,” he says.  “This gets the money working more quickly than it otherwise would.”

Working-capital management is another key area ANZ sees market-leading innovation, particularly around speed of payment, as “time is money”, according to Natarajan.

“The digital economy thrives on cutting down the time for realisation,” he says. “There is finality and certainty. There’s no going back.”

The almost-instantaneous reception of funds allows businesses (especially on the collection side of large corporates no longer required to wait overnight for funds to arrive) to put the money to use almost immediately.

“We are seeing a lot of those implicit changes in how treasury works,” Natarajan says.

Evolve

For businesses new to RTP, or considering making the move, a common concern is bridging the gap between their existing business and treasury processes, and what is required under RTP networks.

But integrating doesn’t necessarily mean throwing out all legacy systems or practices, Natarajan says. Batch processing, for instance, is still viable on RTP networks.

"Batch processing is a construct which can now be isolated, and you can still make an instant payment when you are ready with your batch of payments," he says. “We see that happening.”

Taking insurance again as an example, once the batch of claims has been submitted, reviewed and readied to be completed, it can be paid through the instant-payment mechanism.

“But the underlying process within the insurance company would still be a batch getting created,” Natarajan says. "You are now able to de-link internal complexities from making a payment or receiving a payment from a customer.”

“Your processes could be different for different activities. But at the point when you want payment, you still have the choice to do things on a real time basis."

Jurkovic says an appropriate level of integration with RTP networks comes down to what a company is comfortable with – and often it goes back to what they are trying to achieve with their customer experience.

“It’s how a company thinks about their customer base, what sort of services they want to expose, and how they need to link those services back into their treasury or enterprise resource planning (ERP) management systems,” he says. “And asking what they need to do to make that happen if the case is compelling enough to secure or maintain customers.”

Jurkovic says some ANZ customers are “well and truly” on a journey to uplift their treasury and/or ERP systems in a way that facilitates the use of RTP networks.

“Other [ANZ customers] have had to think, well, if we want to improve our client experience, we actually need to think about our back office more generally - and not just our treasury management systems,” he says. “Back office environments, operational processes, may need to be adjusted to improve the experience.”

That becomes critical as broader usage of RTP networks expands. In Australia the adoption of PEPPOL standards for e-invoicing by government has provided a real incentive for businesses considering making these adjustments. This includes significantly shorter payment terms for select small contracts.

“The businesses prepared to make changes to their systems to support e-invoicing are likely to see a material benefit from a working-capital point of view,” Jurkovic says.

Reconciliation is also an important factor, with RTP networks providing “an opportunity to move [payments] data much quicker than a batch system could otherwise do”, Jurkovic says. This allows customers to deal with that data “far more quickly and in a 24/7 way, whereas that’s just not possible through the current systems”.

Options

ANZ’s approach is to give its customers choices, Jurkovic says – allowing them to select their level of integration when it comes to ANZ-related RTP services.

“ANZ recognises some customers are on a journey, and it may still be too early for them to receive real-time push notifications and the associated data that enables them to reconcile those funds,” he says. “They're not quite there yet.”

“But perhaps they would like to pull data several times a day, to help speed up what otherwise might be an end-of-day process to support their client experiences.”

“What we've tried to do is to say: if you're on an end-of-day cycle in terms of your reconciliation and that works for your experience, great. We can support those needs.”

Customers who prefer something more current or through the course of the working day have options too, including through the use of application programming interfaces (APIs).

“What we've tried to do is to say: if you're on an end-of-day cycle in terms of your reconciliation and that works for your experience, great. We can support those needs.”

“And then for those keen on information near real time, we're building services around APIs that will provide the real time notifications as we get them through the clearing system,” Jurkovic says.

Natarajan says however businesses want to integrate RTP networks, connecting directly with financial services providers like ANZ is no longer a constraint.

“This has opened up a big opportunity for corporates to undertake transformation,” he says. “They're asking, if I can make payments in real time, should my other internal activities still continue to be batched?”

“What does it mean to my customers? What does it mean to me? How much does it cost? Is it now an opportunity to make a change?”

Moving beyond these legacy systems provides an “inherent lifting of constraint” for businesses, Natarajan says, providing the flexibility and freedom of making and receiving payments at any time.

It’s a transformation which makes it “much easier for them to do business with their own customers,” he says.

ISOlation

A key challenge for businesses around RTP networks is navigating the complexity of ISO20022, the modern standard for data exchange between banks, their customers and other financial institutions. It’s the standard for facilitating payments over the “basic RTP-network infrastructure”, Jurkovic says.

For many well-established organisations, it’s not a transition to be made overnight. “A lot of corporates are managing legacy file formats,” he says.

“Actually changing to an ISO standard can take time, be costly, and building a business case to do so can be a challenge.”

ANZ has recognised banks can help customers participate in the RTP networks without necessarily “having to have ISO standard file ingestion and production capability immediately” according to Jurkovic.

For example, companies that wish to participate in Australia’s New Payments Platform (NPP) but aren’t quite ISO20022 ready can lean on banks to convert legacy files into the ISO format and push those through the ecosystem, and do the same thing for the data which is returned, Jurkovic says.

“That was certainly a barrier to entry we identified, where banks could play a role,” Jurkovic says. “Let's see if we can help our corporates participate a little sooner and see the benefits of this quickly.”

Security is a key benefit of RTP networks, with protections that can go above and beyond traditional payment systems. “Many of these platforms require real-time fraud management,” Natarajan says.

While fraud has been present - and inevitable – a lot of it has been social-engineering type fraud, and not necessarily any security compromise of the NPP technology and systems.

Not for long

RTP networks have some limitations, both experts agree. One is the almost-exclusively domestic nature of each network, though this won’t be a challenge for long.

Cross-border payments, the integration of multiple payment systems, is clearly the forward path,” Natarajan says.

Many central banks, particularly in Asia, have international interlinkages as key planks of the upcoming ‘roadmaps’ for their networks. It’s a complex process, Natarajan admits. But a successful model has commenced recently between Thailand and Singapore.

“It's still at an early stage, but it's a great initiative, simply because it shows once you do it domestically, you can also link an RTP network up to cross-border financial services,” Natarajan says. “And that is probably the next area in the sector where you will see a dramatic change.”

Importantly, RTP networks are low-cost mechanisms compared to the traditional cross-border payment methods. Natarajan believes as these new networks develop, domestic systems will learn to co-exist and “push each other”.

But in many cases, businesses won’t need a nudge as they realise what RTP networks can do. Momentum is no longer coming from banks trying to drive corporates, according to Natarajan – but instead the other way.

“We see corporates who are ahead of the curve asking banks, ‘what’s the next stage?’” he says.

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RTP networks: the good, the bad, and the future of payments
Staff writer
ANZ Insights
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